Our Perspectives

How will small island states finance our ambitious Sustainable Development Goals?

02 Apr 2015by
Gail Hurley and Stephen O'Malley

Helen Manvoi and her children stand in front of what used to be their outdoor toilet in Port Vila, Vanuatu. Photo: Silke Von Brockhausen/UNDP

In this blog series, our experts share their thoughts and lessons learned on key financing for development issues, in the run-up to the UN’s Financing for Development conference in July.

“Our development has been wiped out,” said Vanuatu’s President as Cyclone Pam laid waste to pretty much the entire South Pacific nation. It is reported that over 90% of the capital’s buildings have been damaged; disease outbreaks and food and water shortages are now a major concern. Millions, if not billions, will be needed to provide emergency assistance to affected communities and to rebuild the country’s infrastructure.

With major shocks such as these so common, how can small states – from Barbados to Cabo Verde to Samoa – better plan for such emergencies? And will the international community make sure that adequate finance is made available?

Small states often have special challenges when it comes to raising resources. Most often rely on one or two key industries, in particular tourism, for the majority of their exports. For countries spread out over many islands, revenue collection may not be cost-effective, yet remote communities still require basic social services. Many small states have reduced poverty and improved key social indicators over recent years. For example, Barbados has invested heavily in education, and has achieved almost 100% literacy, and enviable secondary and tertiary education levels. Paradoxically, this means donors are less interested in providing development aid. As middle-income countries, most do not have access to cheap finance from the multilateral lenders and climate finance can be complex to access.

These challenges have led many governments to borrow heavily. In the Caribbean in particular, debt ratios are extremely high and place many governments under enormous fiscal pressure.

Concrete solutions to some of these challenges include proposals to reform eligibility criteria for access to concessional finance from international donors and lenders. We believe that criteria such as vulnerability to shocks and climate change should be taken into consideration when evaluating which countries need these resources. When it comes to climate finance we need a better balance between funds for adaptation and those for mitigation, and we also need to ensure that those countries that are most vulnerable to climate change (and least able to cope) are able to benefit from these resources. We could also develop innovative financial instruments to help reduce risk and therefore vulnerability such as GDP-linked bonds, which tie debt repayments to economic performance or counter-cyclical loans which allow debt service to fall, or become zero, when a major shock occurs. Debt swaps for climate-change adaptation could also help raise resources for expenditures on environmental priorities.

In our work in the Eastern Caribbean, UNDP sees every day the challenges that small island states face in attempting to build resilient societies under tight fiscal constraints. Whether it is maintaining and building on the social progress they have made, adapting to climate change, or attempting to reignite growth, the countries of the region are searching for new methods to create the fiscal space they need to reach their ambitious development goals.

2015 represents a key opportunity to reshape development, and small states have been making a strong push to make sure their unique needs are recognized. While many small states have begun to design development strategies that reduce risk and build resilience, it’s also clear that they are deeply impacted by events beyond their control. The international community has a responsibility to design a financial architecture that is more responsive to small states’ needs, and which better addresses their vulnerabilities. The SDGs will chart an ambitious and universal course for the world; let’s be equally bold in finding ways to finance this journey.